ifp_27_Means_of_Estate_Planning.pdf

8/11/2019 ifp_27_Means_of_Estate_Planning.pdf

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188 Financial Planning Handbook PDP

Chapter 27


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189Financial Planning HandbookPDP

Means of Estate Planning

In this chapter, we will discuss the various means by which individuals can carry out Estate Planning.Estate Planning means are basically divided into two ways i.e. during ones lifetime and post death.Thereare certain tools which become effective during ones lifetime like Trust, Power of Attorney, Gift, Partition.Some tools which become effective only after death are Will, Succession and Life insurance. Amongthese, Trusts can also become effective after death by creating a Trust through ones Will. This type ofTrust is called Testamentary Trust.

Wills and Trusts are common means by which individuals achieve their Estate Planning. Other means arePower of Attorney, Gifts, Partition, Succession (when the Will is not made) etc.

Will

A Will is a document, which ensures that the wishes of an individual with respect to his assets andproperty are followed after his death. Problems and complications often arise when a person dies withouta Will. The absence of a Will or the invalidity of a Will or parts of a Will often generates problems for the

legal heirs and successors.

Introduction

Section 2 (h) of the Indian Succession Act, 1925, defines Will as meaning the legal declaration of theintention of testator a person who makes the will with respect to his property, which he desires to becarried into effect after his death.

After the death of a person, a persons property devolves in two ways:

According to the respective law of succession, when no Will is made- i.e. intestate

By way of Will i.e. testamentary

Law of SuccessionThe laws of inheritance are diverse and complicated. The rules of distribution of property in case aperson dies without making a Will are defined by every Law of succession. The property passes to theminor children, the surviving wife and to the mother of the deceased (although not on good terms) inequal shares. If there is an office or house, an equal share will go to the mother. Shares of companies arealso divided equally. It is difficult to get all the heirs on a common meeting ground to write to thecompanies to transfer the shares to the names of the respective heirs. But all these problems can beobviated if a Will is left behind.


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The primary characteristics of a Will are the following:

1. Operation after Testators death : The primary ingredient of a Will is that it takes effect after thedeath of the testator. It means that whatever a testator writes in Will, will come into effect only afterhis death.

Example

Ram, a testator writes his Will stating that as soon as he falls ill after the age of 60 years, all his wealthshould go to his son Mohan. This part of the Will is completely null and void because the effect of theWill takes place before the death of Testator. So, if Ram had mentioned that after his death all hiswealth shall go to his son Mohan, his Will is completely valid in the sense that effects of the Will areafter the death of testator.

2. It can be altered by testator or it is of an ambulatory nature : A Will can be altered or modified atany time by the testator during his lifetime.

Example

Ganshyamdas made a Will mentioning that all his wealth should go to his wife after his death. Later on,he modified the will mentioning that 2/3rd of his wealth shall go to his wife and remaining 1/3rd to hissister-in-law.

3. Revocability : The essence of every Will is that it is revocable (declare invalid) during the lifetime ofthe testator. Section 62 of the Indian Succession Act provides that a Will is liable to be revoked or alteredby its maker at any time when he is competent to dispose of his property by Will. Any clause in a Will thatthe testator cannot revoke can make the Will void.

Further, no third party can sue for the cancellation of a Will during the lifetime of the testator since theWill is liable to be revoked by the act of the testator himself.

4. Legal declaration : A Will is a legal declaration. Certain formalities must be complied with to make avalid Will. It must be signed and attested as required by law.

5. Disposition of property : There must be some property, which is being given to others after the deathof the testator.

Example

A beggar Fakirchand made a Will, stating that after his death, all his good wishes will be with his son.Any clause like this cannot become part of a Will, because it does not include any property.

Who can make a Will?

According to Section 59 of the Indian Succession Act, the following can make a Will:

Any person of sound mind.

Any person who has reached the age of majority.

Executor

An executor is the person appointed ordinarily by the testator by his Will or Codicil. In other words, anexecutor is duty bound to distribute the assets of the testator as per the provisions of his Will. A Probateof a Will is granted only to an executor appointed by the Will.


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Who can be an Executor?

All persons capable of executing a Will can be executors. Even a minor can be appointed an executor ofa Will but a Probate cannot be granted to the minor until he attains majority. A testator can appoint oneor more executors. The appointment of an executor may be absolute or for a limited purpose or limitedtime. An executor as such does not derive any benefit under the Will unless specifically provided for.However, as an executor has vast powers and the property vests in the executor until it is finally distributedto the legatees, it is advisable to appoint a responsible and accountable person/institution as an executor.The executor is primarily appointed to manage the estate of the deceased for the benefit of the beneficiaries/ legatees under the Will.

Legal status of the Executor

The executor is the legal representative for all purposes of a deceased person and all the property of thetestator vests in him until the property is distributed as per the provisions of the Will. The executor isentitled to represent the testator in any legal action (not including criminal or defamatory proceedings).For example, an executor can sue for recovery of the testators debts.

Duties of an Executor

To ascertain the assets of the deceased person.

To pay testamentary and funeral expenses.

To collect the debts and assets of the deceased.

To pay the debts of the deceased.

To apply for a Probate whenever necessary.Codicil is a supplementary document, explaining, altering or adding to its dispositions & is deemed toform part of the will. It must be signed by the testator & attested by two other witnesses.


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